RUBAINA PROPERTIES P. LTD, MUMBAI V. ITO 10(3)3, MUMBAI

ITA 845/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3568 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 31-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS RUPINDER BRAR
• Assessee Lawyers: VIJAY KOTHARI
• Keywords: Unexplained cash credit; Charitable institution; Source of fund; Additional evidence
• Section: 143(3); 133(6); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI .. , ! '#$ % % % % &. '.'.. %( ) '#$ '* BEFORE SHRI P.M. JAGTAP, AM AND DR. S.T.M. PAVALAN, JM './ I.T.A. NO. 845/MUM/2011 ( )( , %-, )( , %-, )( , %-, )( , %-, / / / / ASSESSMENT YEAR : 2006-07) RUBAINA PROPERTIES PVT. LTD., 15, BHANDUP VILLAGE ROAD, NEXT TO WMI CRANES LTD., BHANDUP (W), MUMBAI 400 078. ( ( ( ( / VS. INCPOME TAX OFFICER 10(3)(3), AAYAKAR BHAVAN, M. KARVE MARG, MUMBAI 400 020. $. ! './ PAN : AABCR 6713R ( ./ / // / APPELLANT ) .. ( 01./ / RESPONDENT ) ./ 2 3 ' / APPELLANT BY : SHRI VIJAY KOTHARI 01./ 2 3 ' / RESPONDENT BY : MRS. RUPINDER BRAR '(% 2 ! / // / DATE OF HEARING : 02-05-2013 45- 2 ! / DATE OF PRONOUNCEMENT : 21-06-2013 # 6 / O R D E R PER P.M. JAGTAP, A.M . : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD. CIT(A) -22 MUMBAI DTD. 15-12-2010 AND THE SOLITARY ISSUE ARISING OUT OF THE SAME RELATES TO THE ADDITION OF RS. 2,18,50,000/- M ADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF AMOUNT R ECEIVED BY THE ASSESSEE ITA 845/MUM/2011 2 FROM ITS SHARE HOLDER M/S PRAHLAD TRADING PVT. LTD. TREATING THE SAME AS UNEXPLAINED CASH CREDIT U/S 68 OF THE INCOME TAX AC T, 1961 (THE ACT). 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF PROJECT DEVELOPER, CIVIL CONTRACTOR AND BUILDER. DURING THE YEAR UNDER CONSIDERATION, THERE WAS NO BUSINESS ACTIVITY CARRIED ON BY THE ASSESSEE AND IN THE RETURN OF INCOME FILED FOR THE YEAR UNDER CONSIDERATION ON 13-3-2008, NEGATIVE INCOME I.E. LOSS OF RS. 43590/- WAS DECLARED BY THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS, IT WAS NOTICED BY THE A.O. THAT THE ASSESSEE HAS DEPOSITED A SUM OF RS. 2 ,19,50,000/- BY CHEQUES ON VARIOUS DATES IN ITS BANK ACCOUNT MAINTAINED WIT H INDUS IND BANK, NARIMAN POINT BRANCH, MUMBAI -21. THE ASSESSEE WAS CALLED UPON BY THE A.O. TO PROVE THE IDENTITY AND CREDITWORTHINESS OF THE CONCERNED CREDITOR MAINLY M/S PRAHLAD TRADING PVT. LTD. AS WELL AS THE GENUINENESS OF THE RELEVANT CREDIT TRANSACTION. IN REPLY, THE ASSESSE E FURNISHED CONFIRMATION LETTER ISSUED BY M/S PRAHLAD TRADING PVT. LTD. AND ALSO POINTED OUT THAT THE SAID CREDITOR WAS HOLDING 50% OF ITS SHARES. SINCE THE SAID CREDITOR WAS 50% SHARE HOLDER OF THE ASSESSEE COMPANY AND NOT AN OUT SIDE PARTY, THE A.O. REQUIRED THE ASSESSEE COMPANY TO FILE VERIFIABLE DO CUMENTARY EVIDENCE TO PROVE THE IDENTITY AND CREDITWORTHINESS OF THE CRED ITOR AND THE WILLINGNESS OF THE RELEVANT TRANSACTIONS. IN REPLY, A LETTER ISSU ED BY M/S PRAHLAD TRADING PVT. LTD. WAS FILED BY THE ASSESSEE CONFIRMING THAT THE AMOUNT PAID TO THE ASSESSEE COMPANY WAS FROM THE FUNDS RECEIVED BY IT FROM ONE M/S KENEX EXPORTS PVT. LTD. ACCORDING TO THE A.O., THE SAID LETTER FILED BY THE CREDITOR M/S PRAHLAD TRADING PVT. LTD. AS WELL AS THE EARLIE R CONFIRMATION FILED BY IT WAS NOT SUFFICIENT TO DISCHARGE THE INITIAL BURDEN THAT LAY ON THE ASSESSEE IN TERMS OF SECTION 68 OF THE ACT TO ESTABLISH THE IDE NTITY AND CAPACITY OF THE CREDITOR AS WELL AS THE GENUINENESS OF THE RELEVANT TRANSACTION. HE, THEREFORE, TREATED THE AMOUNT OF RS. 2,19,50,000/- RECEIVED BY THE ASSESSEE FROM M/S PRAHALAD TRADING PVT. LTD. AS UNEXPLAINED CASH CRED IT U/S 68 OF THE ACT AND ITA 845/MUM/2011 3 ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE IN THE ASSESSMENT COMPLETED U/S 143(3) OF THE ACT VIDE AN ORDER DATED 15-12-2008. 3. AGAINST THE ORDER PASSED BY THE A.O. U/S 143(3) OF THE ACT, AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LD. CIT(A) DISPUTING THE ADDITION OF RS. 2,19,50,000/- MADE BY THE A.O. U/S 68 OF THE AC T. BEFORE THE LD. CIT(A), THE FOLLOWING DOCUMENTS WERE FILED BY THE ASSESSEE AS ADDITIONAL EVIDENCE SEEKING ADMISSION THEREOF UNDER RULE 46-A OF THE IN COME TAX RULES, 1962:- SR PARTICULARS 1 PRAHLAD TRADING PVT. LTD. BANK STATEMENTS FOR T HE PERIOD 1.4.2005 30-03-2006 SHOWING CHQ. CLEARED ON ACCOU NT OF AMOUNT GIVEN TO RUBAINA PORPERTIES PVT. LTD. OF RS. 2,18,50,000/-. 2 XEROX COPY OF THE ODCDS ISSUED BY PRAHLAD TRADING PVT. LTD. ISSUED TO KENEX EXPORTS P. LTD. FOR RS. 3,10,00,000 /- 3 RETURN FILING PROOF OF PRAHLAD TRADING PVT. LTD. FOR A.Y. 2006- 07 4 LETTER DTD. 22-12-2008 FROM RUBAINA PROPERTIES PV T. LTD. TO ITO 10(30(3) SUBMITTING THE BALANCE SHEET OF PRAHLA D TRADING PVT. LTD. 5 BALANCE SHEETS AND SCHEDULES ALONG WITH AUDIT REP ORT, DIRECTOR REPORTS OF PRAHLAD TRADING PVT. LTD. 6 FILING PROOF OF DOCUMENT OF PRAHLAD TRADING PVT. LTD. TO ROC 7 BALANCE SHEET AND SCHEDULES ALONG WITH AUDIT REPO RT, DIRECTOR REPORTS OF KENEX EXPORTS PVT. LTD. FOR THE A.Y.-2006- 07 8 XEROX COPY OF THE PAN CARD OF KENEX EXPORTS PVT. LTD. 9 KENEX EXPORTS PVT. LTD. BANK STATEMENTS FOR THE PERIOD 1.8.2005-31.03.2006 SHOWING CHQ. CLEARED ON ACCOUNT OF AMOUNT GIVEN TO PRAHLAD TRADING PVT. LTD. OF RS. 3,10,00,000/- 10 LETTER FROM ECSTASY INVESTMENTS & FINANCE COMPA NY PVT. LTD. ALONG WITH CHEQUES ISSUED, WRITTEN TO KENEX EX PORTS PVT. LTD. SHOWING PROPOSED ISSUE OF OFCDSS. 11 LETTER DATED 17.08.2005 FROM KENEX EXPORTS PVT. LTD. TO ECSTASY INVESTMENT & FINANCE COMPANY PVT. LTD. SHOW ING PROPOSED ISSUED OF OFCDS. 12 CONFIRMATION FROM ECSTASY REALTY PVT. LTD. (FORM ERLY KNOWN AS ECSTASY INVESTMENT & FINANCE COMPANY PVT. LTD.) TO KENEX EXPORTS PVT. LTD. FOR THE AMOUNT GIVEN OF RS. 3,40,00,000/-. ITA 845/MUM/2011 4 4. THE LD. CIT(A) ADMITTED THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE BY PASSING A SPEAKING ORDER AND FORWARDED THE SAID ADD ITIONAL EVIDENCE TO THE A.O. CALLING FOR A REMAND REPORT. IN THE REMAND REP ORT SUBMITTED TO THE LD. CIT(A), THE A.O. STATED THAT THE ASSESSEES CLAIM O F LINEAR FLOW OF FUNDS FROM DIFFERENT ENTITIES COULD NOT BE ACCEPTED AS THE SAI D ENTITIES DID NOT HAVE MUCH OF THE ACTIVITIES EXCEPT TRANSACTIONS OF FUNDS FROM THE ACCOUNT OF ONE ENTITY TO ANOTHER WHICH ALL WERE LINKED EITHER THROUGH COMMON DIRECTORS OR THE SHAREHOLDERS. HE NOTED THAT THE BANK STATEMENTS WE RE CLEARLY SHOWING THE ROTATIONAL TRANSACTIONS AMONG DIFFERENT ENTITIES CO NNECTED THROUGH COMMON DIRECTORS OR SHAREHOLDERS. HE OBSERVED THAT THE VE RIFICATION OF THE SAMPLE ENTRIES IN THE RELEVANT BANK ACCOUNTS REVEALED THAT THE DIFFERENT GROUP ENTITIES WERE MAKING DEPOSIT AND WITHDRAWAL TRANSACTIONS THR OUGH WEB OF ACCOUNTS EVEN WITHOUT HAVING THE ACTUAL BALANCE. HE HELD TH AT IF THE COMPLETE CYCLE OF THE ENTRIES WAS ANALYSED, IT COULD BE SEEN THAT THE ENTITIES COMPLETING THE CYCLE DID NOT HAVE THE NECESSARY FUNDS. HE CONCLUD ED THAT THERE WERE THUS NO SUFFICIENT FUNDS AVAILABLE WITH THE CONCERNED CR EDITOR FOR THE TRANSACTIONS CREATING A DOUBT ABOUT HIS CREDITWORTHINESS. HE ALS O NOTED THAT THE CONCERNED ENTITIES WERE FOUND TO BE INVOLVED IN FINANCIAL IRR EGULARITIES THEREBY CREATING DOUBTS ABOUT THEIR CREDENTIALS AS WELL AS CREDITWOR THINESS. THE A.O. ALSO ANALYSED CERTAIN TRANSACTIONS ENTERED INTO BETWEEN DIFFERENT ENTITIES AND HELD ON SUCH ANALYSES THAT IF IN BETWEEN ENTITIES RECEIP TS AND PAYMENTS ARE CANCELLED, THE TRANSACTION WOULD APPEAR TO BE THE O NE MADE BY THE ENTITIES WITH ITSELF. 5. THE OBSERVATIONS MADE BY THE A.O. IN HIS REMAND REPORT WERE CONFRONTED BY THE LD. CIT(A) TO THE ASSESSEE WITH A N OPPORTUNITY TO OFFER ITS COMMENTS. IN REPLY, IT WAS REITERATED ON BEHALF OF THE ASSESSEE THAT THE EVIDENCE BROUGHT ON RECORD BY IT WAS SUFFICIENT TO ESTABLISH THE IDENTITY AND CAPACITY OF THE CONCERNED CREDITOR AS WELL AS THE G ENUINENESS OF THE RELEVANT TRANSACTION. IT WAS SUBMITTED ON BEHALF OF THE ASS ESSEE THAT ANY PERSON COULD ITA 845/MUM/2011 5 BE A DIRECTOR IN MORE THAN ONE COMPANY AND ALL THE BANK ACCOUNTS OF THE DIFFERENT ENTITIES INVOLVED IN THE TRANSACTIONS BEI NG FULLY VERIFIABLE, THERE WAS NO REASON TO DOUBT THE GENUINENESS OF THE ENTITIES APPEARING IN THE SAID BANK ACCOUNT. IT WAS CONTENDED THAT THERE WAS NO SINGLE CASH DEPOSIT FOUND TO BE MADE IN THE ACCOUNTS NOR WAS THERE ANY OVER DRAFT F ACILITY TAKEN FROM BANK TO DOUBT THE CREDITWORTHINESS OF THE CONCERNED ENTITIE S OR THE GENUINENESS OF THE RELEVANT TRANSACTIONS. IT WAS CONTENDED THAT THE BU RDEN THAT LAY ON THE ASSESSEE IN EXPLAINING THE RELEVANT CASH CREDITS IN TERMS OF SECTION 68 OF THE ACT WAS SATISFACTORILY DISCHARGED AND THE ADDITION MADE BY THE A.O. BY INVOKING THE PROVISIONS OF SECTION 68 OF THE ACT WA S TOTALLY UN-WARRANTED AND UNJUSTIFIED. 6. THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE O N THIS ISSUE WERE NOT FOUND ACCEPTABLE BY THE LD. CIT(A) AND HE PROCEEDED TO CONFIRM THE ADDITION MADE BY THE A.O. U/S 68 OF THE ACT FOR THE FOLLOWIN G REASONS GIVEN IN PARA NO. 4.4 OF HIS IMPUGNED ORDER: I HAVE GONE THROUGH THE ASSESSMENT ORDER, PERUSED THE SUBMISSIONS MADE BY THE APPELLANT AND ALSO DISCUSSED THE CASE W ITH THE A/R OF THE APPELLANT. HOWEVER, I DO NOT AGREE WITH THE EXPLANA TION OFFERED BY THE APPELLANT. THE APPELLANT IS NOT IN A POSITION TO EX PLAIN AS TO HOW PRAHLAD TRADING PVT. LTD., KENEX EXPORTS PVT. LTD., ECSTASY INVESTMENT & FINANCE COMPANY PVT. LTD. HAVE NO MUCH ACTIVITY E XCEPT TRANSFER OF FUNDS FROM ACCOUNT OF ONE ENTITY TO ANOTHER THROUGH COMMON DIRECTOR, SHAREHOLDER OR AUTHORIZED SIGNATORY. FURTHER, AS RE FERRED TO IN PARA 8 OF THE REMAND REPORT QUOTED ABOVE, THE ENTITIES WERE M AKING TRANSFER OF FUNDS ONLY WITHOUT MUCH ACTIVITY. FURTHER, BALANCE SHEET DID NOT PROVIDE ENTITY WISE BREAK UP OF LIABILITIES/ASSETS FOR LOANS/ADVANCES/OFCDS WHICH COULD NOT BE PRODUCED BY THE APPELLANT. ON VERIFICATION OF THE SAMPLE ENTRIES IN BANK ACCOU NT IT WAS NOTED THAT THE GROUP ENTITIES ARE MAKING DEPOSITS AND WITHDRAW THROUGH WEB OF ACCOUNTS CREATING THE MIRAGE OF HAVING FUNDS, FOR E XAMPLE THE ENTRY OF RS. 1,15,00.000/- AS ON 28.03.2005 SHOWS THAT MOVEM ENT IS FROM RUBINA PROPERTIES TO SWEHAN ENTERPRISES TO PRAHLAD TRADING AND HACK TO RUBINA PROPERTIES WHERE FIRST THERE IS WITHDRAWA L IN CASE OF RUBINA PROPERTIES AND THEN RECEIPT IN RUBINA PROPERTIES IT SELF. THE ENTRY IN THE BANK STATEMENT SHOULD SHOW WITHDRAWAL IN RUBINA PRO PERTIES FIRST AND THEN DEPOSIT IN RUBINA PROPERTIES WHILE THE BANK ST ATEMENT SHOWS FIRST ITA 845/MUM/2011 6 DEPOSIT IN RUBINA PROPERTIES AND THEN WITHDRAWAL IN RUBINA PROPERTIES OUT OF THAT RECEIPT. SIMILAR IS THE SITUATION IN C ASE OF SWEHAN ENTERPRISES WHICH CREATES ILLUSION OF FUNDS. APPEL LANT ADMITS THAT THERE IS NO OVERDRAFT FACILITY AND HENCE THIS IS NO T POSSIBLE. FURTHER, ONE OF THE DIRECTORS OF ASSESSEE COMPANY IS HAVING OFFICE ADDRESS AS ENARAI FINANCE LTD. WHICH IS INVOLVED IN FINANCIAL IRREGULARITIES DIRECTORS OF WHICH DEFAULTED FROM PUBLIC AND IS CO MMON AUTHORIZED SIGNATORY FOR THE ENTITY INVOLVED IN MODUS OPERANDI AS ABOVE. ACCORDINGLY, THE CREDITWORTHINESS OF THESE ENTITLES IS NOT PROVED. IN VIEW OF THESE FACTS AND THE DETAILED DISCUSSION MAD E BY THE A.O. IN THE REMAND REPORT AS QUOTED ABOVE, I AM OF THE CONSIDER ED OPINION THAT THE A.O. WAS JUSTIFIED IN MAKING ADDITION OF RS. 2,19,5 0,000/-. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSES SEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 7. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CONFIRMATION LETTER OF THE CONCERNED CREDITOR M/S PRAHLAD TRADING PVT. LTD. (SUPRA) WAS FILED BY THE ASSESSEE BEFORE THE A.O. DURING THE COURSE OF A SSESSMENT PROCEEDINGS. HE INVITED OUR ATTENTION TO THE COPY OF THE SAID CO NFIRMATION PLACED ON RECORD AT PAGE NO. 29 TO 31 OF HIS PAPER BOOK TO POINT OUT THAT ALL THE RELEVANT DETAILS SUCH AS NAME AND ADDRESS OF THE CREDITOR, MODE OF P AYMENT GIVING CHEQUE NO. AND DATES AS WELL AS THE PERMANENT ACCOUNT NUMBER O F THE CREDITOR WERE CLEARLY FURNISHED IN THE SAID CONFIRMATION. HE SUB MITTED THAT EVEN THE SOURCE OF AMOUNT PAID TO THE ASSESSEE COMPANY WAS EXPLAINE D BY THE CREDITOR M/S PRAHLAD TRADING PVT. LTD. BEING THE APPLICATION MON EY RECEIVED TOWARDS OFCD FROM M/S KENEX EXPORTS PRIVATE LTD. HE CONTENDED TH AT THE INITIAL BURDEN THAT LAY ON THE ASSESSEE TO EXPLAIN THE AMOUNT RECE IVED FROM HIS SHAREHOLDER M/S PRAHLAD TRADING PVT. LTD. BY ESTABLISHING THE I DENTITY AS WELL AS CAPACITY OF THE CREDITOR AS WELL AS THE GENUINENESS OF THE R ELEVANT TRANSACTION WAS DULY DISCHARGED BY THE ASSESSEE IN TERMS OF SECTION 68 O F THE ACT AND THERE WAS NO JUSTIFICATION IN THE ACTION OF THE A.O. IN TREATING THAT THE AMOUNT AS UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT. HE SUBM ITTED THAT THE A.O., HOWEVER, INVOKED THE PROVISIONS OF SECTION 68 AND A DDED THE SAID AMOUNT TO ITA 845/MUM/2011 7 THE TOTAL INCOME OF THE ASSESSEE WHICH WAS CHALLENG ED BY THE ASSESSEE IN AN APPEAL FILE BEFORE THE LD. CIT(A). 8. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN ORDER TO FURTHER SUPPORT AND SUBSTANTIATE ITS CASE ON THIS ISSUE, TH E ASSESSEE COMPANY FILED THE RELEVANT DOCUMENTS AS AN ADDITIONAL EVIDENCE BE FORE THE LD. CIT(A) SHOWING THE ENTIRE MONEY FLOW IN ORDER TO ESTABLISH NOT ONLY THE SOURCE OF FUNDS BUT EVEN THE SOURCE OF SOURCE. HE CONTENDED T HAT THIS DOCUMENTARY EVIDENCE FILED BY THE ASSESSEE INCLUDING THE RELEVA NT BANK STATEMENTS CLEARLY SHOWS THAT ALL THE TRANSACTIONS REFLECTED THEREIN W ERE ROUTED THROUGH BANKING CHANNEL BY ACCOUNT PAYEE CHEQUES AND THERE WAS NEIT HER ANY CASH DEPOSIT OR ANY OVERDRAFT TAKEN FROM THE BANK. HE SUBMITTED TH AT THE SAID EVIDENCE ALSO CLEARLY ESTABLISHED THAT SUFFICIENT BALANCE WAS AVA ILABLE AT THE RELEVANT TIME WITH THE CONCERNED PARTIES TO MAKE THE PAYMENTS BY CHEQUE. HE CONTENDED THAT NOT ONLY THE SOURCE OF FUNDS BUT EVEN SOURCE O F SOURCE WAS DULY ESTABLISHED BY THE ASSESSEE. HE SUBMITTED THAT ENQU IRY WAS ALSO CONDUCTED BY THE A.O. DIRECTLY FROM THE CONCERNED PARTIES BY ISSUING NOTICES U/S 133(6) OF THE ACT AND THE SAME WERE DULY REPLIED BY THE SA ID PARTIES GIVING ALL THE INFORMATION REQUIRED BY THE A.O. HE SUBMITTED THAT THE A.O., HOWEVER, BRUSHED ASIDE ALL THESE RELEVANT EVIDENCES AND TREA TED THE AMOUNT IN QUESTION AS UNEXPLAINED CASH CREDIT ON THE BASIS OF ALLEGED CIRCULAR TRANSACTIONS IGNORING THAT THE SOURCE OF THE SAID A MOUNT WAS EXPLAINED BY THE CONCERNED CREDITOR M/S PRAHLAD TRADING PVT. LTD. AS MONEY RECEIVED TOWARDS OFCD FROM M/S KENEX EXPORTS WHICH WAS GIVEN BY M/S KENEX EXPORTS P. LTD. OUT OF ITS OWN FUNDS AND THE SAME WAS REFUNDED BY M/S PRAHLAD TRADING PVT. LTD. TO THEM ON REDEMPTION OF OFCD ON THE REDE MPTION IN THE YEAR 2010. HE CONTENDED THAT ALL THE OBJECTIONS RAISED BY THE A.O. AS WELL AS THE LD. CIT(A) ARE NOT RELEVANT TO DECIDE THE ISSUE REGARDI NG UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT AND THE ASSESSEE HAVING DISCHARGE D THE ONUS TO ESTABLISH THE IDENTITY AND CAPACITY OF THE CONCERNED CREDITOR AS WELL AS GENUINENESS OF ITA 845/MUM/2011 8 THE TRANSACTION, THERE IS NO CASE TO INVOKE THE PRO VISIONS OF SECTION 68 OF THE ACT TO ADD THE AMOUNT IN QUESTION AS UNEXPLAINED CA SH CREDIT. HE TOOK US THROUGH THE VOLUMINOUS DOCUMENTARY EVIDENCE FILED B EFORE THE LD. CIT(A) TO DEMONSTRATE THAT THE SAID EVIDENCE IS SUFFICIENT TO SHOW THAT THE ONUS LAY ON THE ASSESSEE WAS SATISFACTORILY DISCHARGED IN TERMS OF SECTION 68 OF THE ACT AND THERE BEING NOTHING BROUGHT ON RECORD BY THE A. O. OR THE LD. CIT(A) TO FIND FAULT THEREIN EXCEPT THE SO CALLED ALLEGATION OF TH E CIRCULAR TRANSACTION, THE ADDITION U/S 68 OF THE ACT IS NOT SUSTAINABLE. 9. THE LD. D.R., ON THE OTHER HAND, SUBMITTED THAT ALL THE RELEVANT TRANSACTIONS INCLUDING THE TRANSACTIONS INVOLVING T HE AMOUNT IN QUESTION WERE AMONGST RELATED PARTIES WHEREBY THE SAME AMOUN TS WERE CIRCULATED. AHE SUBMITTED THAT THE CASE OF CIRCULAR TRANSACTION S GIVING RISE TO A DOUBT ABOUT THE GENUINENESS OF THE TRANSACTION WAS CLEARL Y MADE OUT BY THE A.O. IN HIS REMAND REPORT ON THE BASIS OF ANALYSES OF THE R ELEVANT TRANSACTION. SHE CONTENDED THAT MERELY BECAUSE THE SAID TRANSACTIONS ARE ROUTED THROUGH BANKING CHANNEL, THE RELEVANT CREDIT CANNOT BE TREA TED AS EXPLAINED AND THE FACTS BROUGHT OUT BY THE A.O. IN THE REMAND REPORT CLEARLY ESTABLISH THAT THE RELEVANT CREDIT TRANSACTIONS WERE NOT GENUINE. SHE CONTENDED THAT THE LD. CIT(A) THEREFORE HAS RIGHTLY UPHELD THE ADDITION MA DE U/S 68 OF THE ACT RELYING ON THE CASE MADE OUT BY THE A.O. IN THE REM AND REPORT AND THE SAME DESERVES TO BE UPHELD. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERVED THAT T HE AMOUNT OF RS. 2,28,50,000/- WAS RECEIVED BY THE ASSESSEE FROM ITS SHAREHOLDER M/S PRAHLAD TRADING PVT. LTD. BY CHEQUES DURING THE YEAR UNDER CONSIDERATION AND CONFIRMATION LETTER OF THE SAID CREDITOR WAS FILED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDING AS CALLED FOR BY TH E A.O. COPY OF THE SAID CONFIRMATION IS PLACED ON RECORD BEFORE US AT PAGE NO. 29 TO 31 OF THE ASSESSEES PAPER BOOK AND A PERUSAL OF THE SAME SHO WS THAT ALL THE RELEVANT ITA 845/MUM/2011 9 DETAILS SUCH AS COMPLETE NAME AND ADDRESS OF THE CR EDITOR, ITS PERMANENT ACCOUNT NUMBER AND THE DETAILS OF MODE OF PAYMENT I NCLUDING THE CHEQUE NOS. WERE GIVEN THEREIN. FURTHER A COPY OF LETTER I SSUED BY M/S PRAHLAD TRADING PVT. LTD. WAS ALSO FILED BY THE ASSESSEE BE FORE THE A.O. WHEREIN THE SOURCE OF AMOUNT IN QUESTION PAID TO THE ASSESSEE W AS EXPLAINED BY THE SAID CREDITOR AS THE APPLICATION MONEY RECEIVED FROM M/S KENEX EXPORTS PVT. LTD. TOWARDS OFCD. A PERUSAL OF THE COPY OF THE SAID LE TTER PLACED AT PAGE 80 AND 81 OF THE ASSESSEES PAPER BOOK SHOWS THAT THE DETA ILS OF THE AMOUNT RECEIVED BY THE M/S PRAHLAD TRADING PVT. LTD. FROM M/S KENEX EXPORTS PVT. LTD. SUCH AS CHEQUE NOS AND DATES WERE GIVEN THEREIN ALONG WI TH PERMANENT ACCOUNT NUMBER OF THE SAID PARTY WHO HAD DULY CONFIRMED THE SAID DETAILS AS WELL AS THE TOTAL AMOUNT OF RS. 3,10,00,000/- PAID TO PRAHL AD TRADING PVT. LTD. TOWARDS APPLICATION MONEY FOR OFCD. IN OUR OPINION , THIS DOCUMENTARY EVIDENCE PRODUCED BY THE ASSESSEE WAS SUFFICIENT TO DISCHARGE THE INITIAL ONUS THAT LAY ON THE ASSESSEE IN TERMS OF SECTION 68 OF THE ACT TO PROVE THE IDENTITY AND CAPACITY OF THE CREDITOR AS WELL AS GENUINENESS OF THE TRANSACTION AND THERE WAS NO JUSTIFICATION IN THE ACTION OF THE A.O . IN TREATING THE AMOUNT IN QUESTION RECEIVED BY THE ASSESSEE FROM THE CONCERNE D CREDITOR M/S PRAHLAD TRADING PVT. LTD. AS UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT WITHOUT BRINGING ANY ADVERSE MATERIAL ON RECORD. 11. IT IS A SETTLED POSITION OF LAW THAT THE INITIA L ONUS TO EXPLAIN THE CASH CREDIT IN TERMS OF SECTION 68 OF THE ACT IS ON THE ASSESSEE AND ONCE THE SAME IS DISCHARGED BY THE ASSESSEE, IT IS SHIFTED TO THE REVENUE AND UNLESS CERTAIN ADVERSE MATERIAL IS BROUGHT ON RECORD BY THE A.O. B Y MAKING FURTHER ENQUIRY, PROVISIONS OF SECTION 68 OF THE ACT CANNOT BE INVOK ED TO TREAT THE RELEVANT CASH CREDIT AS UNEXPLAINED. IN THE CASE OF KALYAN M EMORIAL AND CHARITABLE TRUST VS. CIT, 121 ITD 525 (AGRA) (T.M.), IT WAS HE LD THAT THE ASSESSEE BY FILING EVIDENCE IN THE SHAPE OF CONFIRMATIONS COPIES OF BA NK ACCOUNTS AND ACKNOWLEDGMENTS OF INCOME TAX RETURNS HAD DISCHARGE D THE INITIAL BURDEN TO ITA 845/MUM/2011 10 EXPLAIN THE CASH CREDITS IN TERMS OF SECTION 68 AND THE BURDEN THUS WAS SHIFTED ON THE REVENUE TO SHOW THAT WHAT WAS EXPLAI NED BY THE ASSESSEE WAS NOT A CORRECT STATE OF AFFAIRS. IT WAS HELD THAT T HERE WAS, HOWEVER, NO MATERIAL WHATSOEVER THAT HAD BEEN BROUGHT ON RECORD BY THE D EPARTMENT TO DISCHARGE THE SAID BURDEN AND THE EVIDENCE FILED BY THE ASSES SEE REMAINING UN- REBUTTED, ADDITION U/S 68 COULD NOT BE MADE. IN TH E CASE OF ORIENT TRADING CO. LTD. (49 ITR 723) IT WAS HELD BY THE HONBLE BO MBAY HIGH COURT THAT IF THE CASH CREDIT ENTRY STANDS IN THE NAME OF THIRD P ARTY AND THE ASSESSEE SATISFIES THE INCOME TAX OFFICER AS TO THE IDENTITY OF THE THIRD PARTY AND ALSO SUPPLIES SUCH OTHER EVIDENCE WHICH WILL SHOW PRIME FACIE THAT THE ENTRY IS NOT FICTITIOUS, THE INITIAL BURDEN WHICH LIES ON HIM CA N BE SAID TO BE DISCHARGED BY HIM. IT WAS HELD THAT THE BURDEN WILL THEN SHIFT O N TO THE DEPARTMENT TO SHOW WHY THE ASSESSEES CASE CANNOT BE ACCEPTED AND WHY IT MUST BE HELD THAT THE ENTRY THOUGH PURPORTING TO BE IN THE NAME OF A THIR D PARTY STILL REPRESENTS THE INCOME OF THE ASSESSEE FROM A SUPPRESSED SOURCE. I T WAS HELD THAT IN ORDER TO ARRIVE AT SUCH A CONCLUSION, THE DEPARTMENT HAS TO BE IN POSSESSION OF SUFFICIENT AND ADEQUATE MATERIAL. IT IS OBSERVED TH AT THE A.O., IN THE PRESENT CASE, HOWEVER, TREATED THE CASH CREDIT AS UNEXPLAIN ED WITHOUT BRINGING ANY ADVERSE MATERIAL ON RECORD BY MERELY OBSERVING THAT THERE WAS NO VERIFIABLE DOCUMENTARY EVIDENCE PRODUCED BY THE ASSESSEE WITHO UT EVEN POINTING OUT THE NATURE OF SUCH EVIDENCE REQUIRED BY HIM OR WITH OUT MAKING ANY FURTHER ENQUIRY WHATSOEVER IN THE MATTER WHICH, IN OUR OPIN ION, WAS TOTALLY UNJUSTIFIED AND UNWARRANTED. 12. THE A.O. HAVING MADE THE ADDITION U/S 68 OF THE ACT TREATING THE AMOUNT RECEIVED FROM PRAHLAD TRADING PVT. LTD. AS U NEXPLAINED CASH CREDIT U/S 68 OF THE ACT, APPEAL WAS PREFERRED BY THE ASSE SSEE BEFORE THE LD. CIT(A) DISPUTING THE SAID ADDITION AND ADDITIONAL EVIDENCE WAS FILED BY IT BEFORE THE LD. CIT(A) TO FURTHER SUPPORT AND SUBSTANTIATE ITS CASE THAT THE SAID ADDITION MADE BY THE A.O. WAS NOT SUSTAINABLE. THE SAID ADD ITIONAL EVIDENCE FILED BY ITA 845/MUM/2011 11 THE ASSESSEE BEFORE THE LD. CIT(A) WAS COMPRISING O F THE RELEVANT DOCUMENTS TO ESTABLISH THE FLOW OF FUNDS RECEIVED BY THE ASSE SSEE AND THE SAME ARE ALREADY LISTED BY US IN THE FOREGOING PORTION OF TH IS ORDER. THE SAID ADDITIONAL EVIDENCE BEING RELEVANT TO DECIDE THE ISSUE RELATIN G TO THE ADDITION U/S 68 OF THE ACT WAS ADMITTED BY THE LD. CIT(A) U/R 46-A OF THE INCOME TAX RULES, 1962 BY PASSING A SPEAKING ORDER AND THE SAME WAS F ORWARDED BY HIM TO THE A.O. CALLING FOR THE LATERS REMAND REPORT THEREOF. THE COPIES OF THE DOCUMENTS FILED BY THE ASSESSEE AS ADDITIONAL EVIDENCE BEFORE THE LD. CIT(A) ARE PLACED ON RECORD BEFORE US IN THE PAPER BOOK FILED BY THE ASS ESSEE AND THE LD. COUNSEL FOR THE ASSESSEE HAS TAKEN US THROUGH THE SAID DOCU MENTS TO DEMONSTRATE THE FLOW OF FUNDS RECEIVED BY THE ASSESSEE. AS SHOWN B Y HIM FROM THE COPY OF ASSESSEES BANK STATEMENT, THE AMOUNT IN QUESTION W AS RECEIVED BY THE ASSESSEE FROM M/S PRAHLAD TRADING PVT. LTD. BY A/C PAYEE CHEQUES AND THE SAME WAS CREDITED TO THE REGULAR BANK ACCOUNT MAINT AINED BY THE ASSESSEE IN INDUSIND BANK, NARIMAN POINT BRANCH, MUMBAI. THE S AID AMOUNT WAS RECEIVED BY THE ASSESSEE FOR MAKING INVESTMENT IN S WEHAN ENTERPRISES WHEREIN IT WAS A PARTNER. THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO TAKEN US THROUGH THE BANK STATEMENT OF M/S PRAHLAD TRADING P VT. LTD. PLACED IN THE PAPER BOOK TO SHOW THAT THE RELEVANT PAYMENTS MADE BY THE SAID CREDITOR TO THE ASSESSEE WERE DULY REFLECTED IN THE SAID BANK A CCOUNT. THE SAID BANK ACCOUNT ALSO SHOWS THAT SUFFICIENT BALANCE WAS AVAI LABLE WITH M/S PRAHLAD TRADING PVT. LTD. IN ITS BANK ACCOUNT AT THE RELEVA NT TIME TO GIVE THE AMOUNT IN QUESTION TO THE ASSESSEE AND THE SOURCE OF THE S AID AMOUNT WAS FUNDS RECEIVED BY M/S PRAHLAD TRADING PVT. LTD. FROM M/S KENEX EXPORTS PVT. LTD. AS APPLICATION MONEY FOR OFCD. 13. AS ALREADY NOTED BY US, THE LETTER ISSUED BY M/ S PRAHLAD TRADING PVT. LTD. WAS FILED BY THE ASSESSEE BEFORE THE A.O. EXPL AINING THE SOURCE OF FUNDS FOR GIVING THE AMOUNT IN QUESTION TO THE ASSESSEE W HICH WAS ALSO CONFIRMED EVEN BY M/S KENEX EXPORTS PVT. LTD. GIVING ITS PERM ANENT ACCOUNT NUMBER. ITA 845/MUM/2011 12 IN THE FORM OF ADDITIONAL EVIDENCE, THE ASSESSEE AL SO FILED THE OFCD ISSUED BY M/S PRAHLAD TRADING PVT. LTD. TO M/S KENEX EXPORTS PVT. LTD., BALANCE SHEET ALONG WITH RELEVANT SCHEDULES OF M/S PRAHLAD TRADIN G PVT. LTD. AND M/S KENEX EXPORTS PVT. LTD. AS WELL AS THE BANK STATEME NT OF M/S KENEX EXPORTS PVT. LTD. WHEREIN THE AMOUNT PAID BY THE SAID PARTY TO M/S PRAHLAD TRADING PVT. LTD. BY CHEQUES TOWARDS APPLICATION MONEY FOR OFCD OF RS. 3,10,00,000/- WAS DULY REFLECTED. IN OUR OPINION, THIS EVIDENCE BROUGHT ON RECORD BY THE ASSESSEE WAS SUFFICIENT TO ESTABLISH NOT ONLY THE SOURCE OF CREDIT IN QUESTION BUT EVEN THE SOURCE OF SOURCE AS RIGHTL Y CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE. IT APPEARS THAT THE A.O. AS WELL AS LD. CIT(A), HOWEVER, BRUSHED ASIDE THIS OVERWHELMING EVIDENCE W HICH WAS RELEVANT AND MATERIAL TO DECIDE THE ISSUE ABOUT THE APPLICABILIT Y OF SECTION 68 OF THE ACT AND TREATED THE RELEVANT CASH CREDIT AS UNEXPLAINED DOUBTING THE GENUINENESS OF THE TRANSACTION AND CAPACITY OF THE CREDITOR ON THE BASIS OF ROTATIONAL OR CIRCULAR TRANSACTIONS ALLEGEDLY MADE BY THE GROUP E NTITIES. WE HAVE GONE THROUGH THE ANALYSIS MADE BY THE A.O. IN THIS REGAR D IN HIS REMAND REPORT AND FIND THAT THE EXAMPLE GIVEN BY THE A.O. IN THIS CONTEXT MAINLY REVOLVES AROUND THE ASSESSEE COMPANY, M/S PRAHLAD TRADING PV T. LTD. AND SWEHAN ENTERPRISES. ALTHOUGH THE LD. COUNSEL FOR THE ASSES SEE HAS TRIED TO OFFER HIS EXPLANATION IN THIS REGARD, WE FIND THAT THIS ASPEC T IS NOT VERY RELEVANT IN SO FAR AS THE ISSUE UNDER CONSIDERATION RELATING TO TH E ADDITION U/S 68 OF THE ACT IS CONCERNED. WHAT IS RELEVANT IN THIS CONTEXT IS T HE EXPLANATION OF THE ASSESSEE IN RESPECT OF THE SOURCE OF RELEVANT CASH CREDIT. IT IS OBSERVED IN THIS REGARD THAT THE AMOUNT IN QUESTION WAS RECEIVED BY THE ASSESSEE FROM M/S PRAHLAD TRADING PVT. LTD. AND THE SOURCE OF FUNDS I N THE HANDS OF THE SAID CREDITOR WAS THE AMOUNT OF RS. 3,10,00,000/- RECEIV ED FROM M/S KENEX EXPORTS PVT. LTD. TOWARDS APPLICATION MONEY FOR OFC D. AS ESTABLISHED BY THE ASSESSEE ON EVIDENCE, OFCDS WERE ACTUALLY ISSUED BY M/S PRAHLAD TRADING PVT. LTD. TO M/S KENEX EXPORTS PVT. LTD. AND THE SA ME WERE REDEEMED ONLY AFTER FIVE YEARS I.E IN THE YEAR 2010 WHEN THE AMOU NT OF OFCD WAS RETURNED ITA 845/MUM/2011 13 BY M/S PRAHLAD TRADING PVT. LTD. TO M/S KENEX EXPOR TS PVT. LTD. THE INVESTMENT IN OFCD OF M/S PRAHLAD TRADING PVT. LTD. WAS MADE BY M/S KENEX EXPORTS PVT. LTD. OUT OF THEIR OWN FUNDS AND IT IS NOT THE ALLEGATION OF THE A.O. THAT THE SAID AMOUNT WAS RECEIVED BY M/S K ENEX EXPORTS PVT. LTD. AS PART OF CIRCULAR TRANSACTIONS. THE FUNDS FOR GIVING THE AMOUNT IN QUESTION THUS WERE GENERATED BY THE CONCERNED CREDITOR M/S P RAHLAD TRADING PVT. LTD. FROM AN INDEPENDENT SOURCE WHICH WAS NOT EVEN PART OF CIRCULAR TRANSACTIONS ALLEGED BY THE A.O. AND THIS BEING SO, WE ARE OF TH E VIEW THAT THE GENUINENESS OF THE RELEVANT CASH CREDIT CANNOT EVEN OTHERWISE B E DOUBTED ON THE BASIS OF CIRCULAR TRANSACTIONS AS ALLEGED BY THE A.O. AS AL READY OBSERVED BY US, SUFFICIENT EVIDENCE WAS PRODUCED BY THE ASSESSEE TO ESTABLISH THE IDENTITY AND CAPACITY OF THE CONCERNED CREDITOR AS WELL AS THE G ENUINENESS OF THE RELEVANT TRANSACTIONS AND THE ONUS IN TERMS OF SECTION 68 TO EXPLAIN THE SAID CASH CREDIT HAVING BEEN DULY DISCHARGED BY THE ASSESSEE, WE ARE OF THE VIEW THAT THE ADDITION MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) BY TREATING THE SAID CASH CREDIT AS UNEXPLAINED U/S 68 OF THE ACT I S NOT JUSTIFIED. WE, THEREFORE, DELETE THE SAID ADDITION AND ALLOW THIS APPEAL OF THE ASSESSEE. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOW ED. 7 8 )( ,7 2 $% 9 2 :; ORDER PRONOUNCED IN THE OPEN COURT ON 21-06-2013 . # 6 2 45- ! <#(8 21-06-2013 5 2 SD/- SD/- (DR. S.T.M. PAVALAN) (P.M. JAGTAP ) ) '#$ JUDICIAL MEMBER ! '#$ / ACCOUNTANT MEMBER MUMBAI ; <#( DATED 21-6-2013 ITA 845/MUM/2011 14 %.)(.'./ RK , SR. PS # 6 2 0)=> ? >- # 6 2 0)=> ? >- # 6 2 0)=> ? >- # 6 2 0)=> ? >-/ COPY OF THE ORDER FORWARDED TO : 1. ./ / THE APPELLANT 2. 01./ / THE RESPONDENT. 3. @ () / THE CIT(A)22, MUMBAI. 4. @ / CIT 10 MUMBAI 5. >%C 0))( , , / DR, ITAT, MUMBAI D BENCH 6. , D / GUARD FILE. # 6(' # 6(' # 6(' # 6(' / BY ORDER, '1> 0) //TRUE COPY// E E E E/ // /': ': ': ': ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI